Keep printing? Fed stays in game, but exit looms

Federal Reserve officials may be getting closer to tapering the central bank's controversial bond-buying program, but minutes from the most recent meeting show some hesitation remains.

The upshot: While a pullback in historically easy monetary policy is ahead, for now it's status quo until the economy shows more significant improvement.

The stock market saw a kneejerk selloff initially following the minutes but rebounded within a half hour to wipe out all of the day's losses. Selling renewed into the close, with the averages heading toward a slightly negative but highly volatile day.

With markets on edge as to when the Fed will ease off on its $85 billion a month in quantitative easing, minutes from the July Fed Open Markets Committee meeting reflected concern about the future direction.

"The latest FOMC minutes suggest the Fed wants to keep us on tenterhooks over the timing of tapering its bond-buying appetite," said Andrew Wilkinson, chief market economist at Miller Tabak.

(Read more: 'Bernanke Bubble' going bust in emerging markets)

Divided committee members showed clear worry about the impact the tapering talk was having on the markets, and what policy should look like in an economy that still showed sluggish growth.

"Meeting participants pointed to heightened financial market uncertainty about the path of monetary policy and a shift of market expectations toward less policy accommodation," the minutes stated.

Importantly, they gave their imprimatur to Chairman Ben Bernanke's comments at a post-meeting news conference in June, during which he indicated that tapering asset purchases likely would begin this year and the program would wrap up in mid-2014.

"Almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony," the minutes said.

Central bank officials revised their longer-term economic projections slightly upward during the meeting, but expressed concern about the effect fiscal policy would have.

"The staff viewed the uncertainty around the forecast for economic activity as normal relative to the experience of the past 20 years," the minutes said. "However, the risks were still viewed as skewed to the downside, in part because of concerns about the situation in Europe and the ability of the U.S. economy to weather potential adverse shocks."

Stocks have experienced a rocky August as concerns grow that the QE wheels are beginning to grind to a halt, albeit slowly.

Wall Street has ridden the three versions of the program launched since the financial crisis to a market gain approaching 150 percent.

But as worries grow over the end of asset purchases—money printing—interest rates have climbed and stocks have fallen.

To be sure, the S&P 500 is still up more than 15 percent in 2013, but some in the market worry that the aggressive rally is in jeopardy.

Committee members appeared to discuss market reaction to Fed policy at length, noting that "domestic and foreign asset markets were volatile at times during the intermeeting period, reacting to policy communications and data releases.

They pointed out improved sentiment toward financial institutions and said "stock prices of large domestic banks outperformed broader equity indexes."

Since that meeting, though, the KBW Bank Index has fallen nearly 2 percent.